ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Sahara, a Tougher Nut to Crack

The Reserve Bank of India's action against Sahara was long overdue, but will the central bank succeed?

No matter how deftly one marshals myriad arguments in defence of the Residuary Non-Banking Companies (RNBCs), Sahara and Peerless, that they are anachronisms in our nancial system today would be difcult to dismiss. Over the past two decades, these companies have grown into large conglom-erates, spreading out into a wide variety of ventures such as real estate, housing, hotels, hospitality, media, healthcare, life insur-ance and mutual funds. Paradoxically, this branching out, in a way, is the outcome of regulatory indulgence. Initially, the RNBCs were required to invest 80 per cent of their deposits in gilt edged and trustee securities. To compensate the companies for the low yields from such securities, the Reserve Bank of India (RBI) had allowed them a “discretionary quota” within which the owners were free to invest in any venture of their choice. It was this carte blanche that proved amenable to misuse. Little wonder that the owners of these RNBCs, small-time operators not that long ago, have now blos-somed into industrial celebrities with deep political entanglements and are brazen enough to challenge regulatory command.

True, the discretionary quota has been abolished, but the remedy has been a bit too late in arriving. The question is why the RBI re-mained a silent spectator for so many years when these companies were branching out recklessly into completely unrelated spheres. The umbilical cord must be severed, for otherwise the subsidiary non-nancial entities, some of them bleeding profusely, may con-tinue to pose a threat to the viability of the parent companies. Be that as it may, several other worries continue to haunt the regulators.

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Or

To gain instant access to this article (download).


Pay
INR 59

(Readers in India)


Pay
$ 6

(Readers outside India)

Support Us

Your Support will ensure EPW’s financial viability and sustainability.

The EPW produces independent and public-spirited scholarship and analyses of contemporary affairs every week. EPW is one of the few publications that keep alive the spirit of intellectual inquiry in the Indian media.

Often described as a publication with a “social conscience,” EPW has never shied away from taking strong editorial positions. Our publication is free from political pressure, or commercial interests. Our editorial independence is our pride.

We rely on your support to continue the endeavour of highlighting the challenges faced by the disadvantaged, writings from the margins, and scholarship on the most pertinent issues that concern contemporary Indian society.

Every contribution is valuable for our future.